Comcast deal a blow to Apple TV and Netflix

Feb. 13, 2014
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John Shinal, technology columnist for USA TODAY. / USA TODAY

by John Shinal, Special to USA TODAY

by John Shinal, Special to USA TODAY

SAN FRANCISCO -- Apple investors and Netflix fans better start writing to their elected officials in Washington to oppose Comcast's $45 billion acquisition offer for rival Time Warner Cable.

The reason?

If the giant cable merger announced today is approved by regulators without any conditions to protect consumers, the deal will be a disaster both for users who want access to low-cost, Web-based entertainment and for the companies that want to deliver it.

The acquisition could put a major hurt on Apple CEO Tim Cook and the company's shareholders, who've been hoping for more than a year that a digital entertainment device might help revive the company's fading revenue growth.

The Comcast offer came amid reports this week that Apple was once again negotiating with Time Warner to license movies and TV programs for the long-rumored Apple TV platform.

Without that type of premium content, any future Apple device will likely be a poorly-selling box that consumers can't watch much with.

But in the wake of the Comcast's announcement, any leverage Apple may have gained in those talks by playing America's two largest cable rivals against each other has evaporated.

It's as if Comcast CEO Brian Roberts has told the Apple CEO, "Here's what I think of your latest proposal to Time Warner, Mr. Cook!"

Roberts is no fool. He and others in the cable industry have seen how Apple's iTunes store has eviscerated the profit margins of the music business.

Cable companies aren't about to let another new technology from Apple -- or any other innovative company -- destroy their business model, at least not without a fight.

And the cable giants have a weapon which the large music companies lacked in their lost war: a near-monopoly on customers in their respective geographic regions.

Consumers who've seen their access to television networks such as CBS and cable channels such as The Weather Channel blocked by pay TV operators during contract negotiations can attest to who has the power in today's market for TV news and entertainment.

The same fate may now await Netflix and its users in any future negotiations the on-demand video service has with cable companies.

And those negotiations will be about more than just content.

Netflix depends on cable and phone giants -- which enjoy formidable market share in the market for broadband services -- to deliver its Web-based programming into consumer homes at high data-transfer speeds.

Without those speedy connections, watching movies and TV shows over Netflix would be choppy, slow and unreliable.

In other words, it would look the way Web video looked back when no one would pay for it.

Last month, a federal appeals court threw out so-called Net Neutrality rules that prevented cable and phone companies from discriminating against data traffic sent by Netflix, YouTube and other bandwidth-hogging services.

With that protection gone, Netflix will get what connection speeds it can for its more than 30 million U.S. subscribers at the negotiating table.

And with one more cable giant that can carry its service removed from the market, its leverage in any talks with Comcast will be weakened, just as Apple's has been.

I wrote last month that the Net Neutrality ruling may not hurt Netflix all that much, yet the proposed Comcast-Time Warner merger would alter significantly the landscape for on-demand video services.

So those who own Apple shares or enjoy watching their favorite movies and TV shows on Netflix for just $8 per month should get ready to send an email or make a call to Congress or the Federal Communications Commission, which must approve the Comcast deal.

Without that pressure, future Internet-based entertainment services offered by either of those two companies â?? and others like them -- are likely to go higher in price or lower in quality.